Question
During Denton Company's first two years of operations, the company reported absorption costing net operating income...
During Denton Company's first two years of operations, the company reported absorption costing net operating income as follows: Yon 2 $ 1,200,000 $ 1,890,000 Sales (@ $63 per unit) Cost of goods sold (@ $35 per unit) 700,000 1,050.000 560,000 840,000 Gross margin Selling and administrative expenses 312,000 342,000 Net operating income 248,000 498,000 * 53 per unit variable, 5252,000 fixed each year. The company's $35 unit product cost is computed as follows: 7 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead (5425,000 - 25.000 units) Absorption costing unit product cost
Production and cost data for the two years are given below: Units produced Units sold 25,000 20,000 25,000 30,000 Required: 1. Prepare a variable costing contribution format income statement for each year. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.) Variable Costing Income Statement Year 2 (Click to select) Variable expenses: (Cick to select) (Cik to select) Total variable expenses Ciekto sect) Fixed expenses. (Cik to select) Cik to select Total fixed expenses Click to select)
2. Reconcile the absorption costing and variable costing net operating income figures for each year. (Loss amounts and amounts to be deducted should be indicated with a minus sign. Omit the "S" sign in your response.) Year Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Year 2 Variable costing net operating income (loss) Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing Absorption costing net operating income (loss)
Answers
1.
Variable Costing Income Statement Year 1 Year 2 [email protected]$63 $1,260,000 $1,890,000 Variable expenses: Variable cost of goods [email protected]$18 ($7+8+3) 360,000 540,000 Variable selling and administrative [email protected]$3 60,000 90,000 Total variable expenses 420,000 630,000 Contribution margin 840,000 1,260,000 Fixed expenses: Fixed manufacturing overhead 425,000 425,000 Fixed selling and administrative expenses 252,000 252,000 Total fixed expenses 677,000 677,000 Net operating income $163,000 $583,000 2.
Reconciliation of variable costing and absorption costing net operating income Year 1 Year 2 Variable costing net operating income 163,000 583,000 Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing 85,000 (5,000*$17) -85,000 Absorption costing net operating income 248,000 498,000
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